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Jan 17 5 Credit Habits You Need to Break This Year

Do you wish you could improve your credit score, but don’t understand what you’re doing wrong? A credit report is made up of many factors that will affect your credit score. There are numerous reasons why your credit score may not be what you want it to be, but if you find that your credit score is dropping due to bad credit habits, it’s time to fix these bad habits and turn your credit around.

Here are five bad credit habits you might be doing that are be detrimental to your financial health:

1. Deciding that ignorance is bliss.

Nearly 1 in 8 of Americans (12%) have never checked their credit score. Many people just don’t realize how important it is to know. Don’t be one of these people. Read through your credit card statements each month carefully to make sure everything is correct. Look at your credit report at least once a year to see if there are any discrepancies you should report. Understanding your financial situation is the best step toward building a better financial future.

2. Closing unused credit card accounts.

What do you do if you have a credit card that you haven’t used in months, or even years? Many people (31%) believe that closing an unused credit card account can improve your credit score. However, closing an old account might actually be harmful towards your credit score because you could be decreasing the average age of your accounts. Instead of closing old accounts, try to use it once every three to six months to build credit, but not overwhelm your finances. Understand all of your options before you close a credit card account.

3. Spending more than you earn.

Credit cards can create a false sense of security. They make you feel like you have more money to spend than you actually do. But, if you continue to spend more than you earn, you could max out your credit cards and end up paying high interest fees. If you find that you can’t pay off your credit card each month, you should look into your budget and see where you can cut back on expenses. If you’re using your credit cards to continuously live beyond your means, you’re headed down the wrong path.

4. Avoiding credit altogether.

Would it improve your credit score if you stopped using credit cards altogether? If you’re worried that you might get in over your head financially, then maybe. However, it’s just as hurtful if you don’t work on building your credit score as it is if you max out your credit cards. No credit is as bad as bad credit, in most circumstances. The best thing to do is to learn how to maintain a healthy credit balance and don’t spend more than you can pay off each month.

5. Only making minimum payments

One of the worst things you could do for your credit score is to simply pay the minimum payments each month. Putting $25 towards a $2,500 fee won’t make as big of an impact in the long run, because it will keep you in debt for a long time and you’ll incur a lot in interest fees. Your credit usage should always be less than 30% of your credit limit. Paying your debt down as quickly as possible will make a positive impact on your credit score.

What habits have you adapted throughout the years that may be hurting your credit score? Make it one of your goals this year to stop hurting your finances and to start improving your financial situation today.